Liam Dann: Economic fallout from earthquakes impossible to gauge

Nervous investors are repatriating funds and have sent the yen soaring to highs not seen since the days after World War II. Photo/ AP

Lunchtime on February 22 is still less than a month ago but already seems like another world away.

In the grip of a balmy late summer, New Zealand felt as if it was finally starting to recover from the shock of the Pike River tragedy and the September earthquake.

The economic recovery wasn't exactly in full swing after a flat second half in 2010 but there were signs of hope.

High commodity prices and good summer rains had ensured that agricultural export dollars were flowing into the country. And the tourism sector was preparing itself for a bumper year feeding off the publicity of the Rugby World Cup.

The failure of the Whitcoulls chain still seemed like a pretty epic story - perhaps one of the last big company collapses of the downturn.

In short, business was tough but we were used to that, and the recovery path was starting to become clearer. Then the quake hit Christchurch - and now Japan. Both at a local level and internationally economic uncertainty has roared back into our lives.

Uncertainty can be crippling. It is surely one of the most stressful things a business has to deal with. But once again, we are in uncertain times.

Economists can argue about the severity of economic damage done to the nation by the Christchurch quake. But the scale of the event, unprecedented in modern times and certainly since New Zealand opened itself to the free market, is such that there is little to benchmark it against.

The equations aren't simple - while there will be big losses there will also be gains which the net damage has to be weighed against.

In Auckland the short-term impact sees some businesses suffering already. Auckland is home to head offices of many nationally focused retail and service companies. Many of those have seen sales to Christchurch, a materially significant market, stall utterly in the last month. How long before Christchurch demand returns to anything like normal is anyone's guess.

Longer term there will be upsides for the Auckland economy. Some companies will close Christchurch offices, boosting staff at head offices in Auckland to cover the loss.

Others may benefit as the rebuild gets into full swing. More broadly, Auckland business will get a shot in the arm it wasn't expecting from a cut to the official cash rate.

Then there is the Rugby World Cup, which will now see greater numbers of tourists spending in this part of the country.

There is little to cheer about in the upsides but there is no point feeling guilty either. New Zealand's economy is too fragile to let any opportunities for business growth go by.

Picking the impact the Japanese disaster will have on the global economy is even harder.

On the one hand Japan is no longer the global economic force it was in 1995 at the time of the Kobe quake.

Then it represented 18 per cent of global GDP, now thanks largely to the rise of China it accounts for just 8.7 per cent. But still it is a powerhouse of global electronics and manufacturing. The ongoing shutdown of its automotive factories has an immediate effect on global commodity prices, depressing demand. That demand should bounce back and in many cases get a boost when the rebuilding of northeastern Japan begins.

But Japan is also a major force in world financial markets with massive private savings invested around the world. Already nervous investors are repatriating funds and have sent the yen soaring to highs not seen since the days after World War II.

That hurts Japanese exports and creates a less direct but just as serious recessionary threat to the economy.

Analysing the impact of a weaker Japan on the US, China, Europe and New Zealand is going to take some time. Hopefully things are not weakened to the point that the global recovery is stalled yet again.